Reducing China Exposure in Emerging Markets ETFs

Emerging markets stocks and the corresponding exchange traded funds are struggling this year and China is a big reason why. Amid trade war speculation, Chinese stocks are floundering, pressuring an array of cap-weighted emerging markets ETFs that feature significant weights to the world’s second-largest economy.

Investors looking to stick with emerging markets fund while reducing China exposure relative to cap-weighted benchmarks can consider ETFs such as the Schwab Fundamental Emerging Markets Large Company ETF (NYSEARCA: FNDE).

FNDE tracks the Russell Fundamental Emerging Markets large Company Index, which selects, ranks and weights components based on fundamental factors like adjusted sales, retained operating cash flow and dividends plus buybacks.

Today, FNDE allocates just over 20% of its weight to China, significantly lower than its aforementioned rivals. However, FNDE “employs no direct limit on country weightings, so geographic diversification could still be an issue in the future. Also, it weights holdings by fundamental measures rather than market cap, making it a value-oriented strategy,” according to Morningstar.

FNDE is positioned as a value fund.